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Russia says won't cut oil output, sees no price floor

Tue, Dec 16, 2014 - 8:29 PM

Russia said on Tuesday it would not cut oil output to help prop up prices and refrained from calling on Opec to do so despite its economy showing signs of severe stress and its currency collapsing to record lows.

PHOTO: REUTERS

[DOHA] Russia said on Tuesday it would not cut oil output to help prop up prices and refrained from calling on Opec to do so despite its economy showing signs of severe stress and its currency collapsing to record lows.

Oil prices dropped to near US$59 per barrel on Tuesday for the first time since 2009 after Opec member the United Arab Emirates reinforced on Monday the message from key Gulf producers that Opec would not rush to cut its production to balance the market and alleviate a growing global glut.

Oil prices are now down almost by a half since June due to weak demand and growing supply from the United States in a development putting oil-dependent economies such as Russia and Venezuela under severe strain.

When Opec led by Saudi Arabia decided against cutting output last month, some Opec ministers suggested the cartel could act only in tandem with non-Opec producers such as Russia to help balance the market.

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However, Russia has said it would not cut production even if oil prices fell below US$60 per barrel - far below some US$100 a barrel it needs to balance its budget - a message reinforced on Tuesday by energy minister Alexander Novak.

"If we cut, the importer countries will increase their production and this will mean a loss of our niche market," he told reporters on the sidelines of a conference in Doha speaking through an interpreter.

"We plan to preserve the plan for 2014 production without any increase or decrease," he said.

His comments came as the rouble fell to a new all-time low despite the central bank's steep rate hike on Monday.

The collapse of the rouble and plunging oil revenue present one of the biggest challenges for President Vladimir Putin during his 15-year rule at a time when the Russian economy is already struggling under Western sanctions over Ukraine.

Mr Novak said Russia, the world's second largest oil exporter after Saudi Arabia, will maintain its output levels even if there was no guarantee prices would not go much lower.

"No one will tell you this," Mr Novak said when asked what was the floor for oil prices.

He also said Russia agreed with the view of Saudi Arabia that the oil market would eventually stabilise itself.

He said oil companies have so far not made any changes to ongoing projects in Russia, but the possibility of them freezing some projects could not be ruled out.

"We have been assessing risks, the production may drop automatically because of the low prices and the decision by oil companies to freeze some of the investment projects," he said.

"Russia is not a country that increases supply to the global market ... and with the growth of domestic consumption export volumes are slightly decreasing," he added.